"The stock market traded with broad-based weakness for virtually the entire session, but was able to pare its losses to close well off its session low in another round of light trading volume," analysts at Briefing.com said.

Investor sentiment was dampened after Kuwait scrapped a 17.4-billion-dollar deal with Dow Chemical to create a petrochemicals joint venture.

Analysts said the pullout, announced Sunday by the Kuwaiti government, could jeopardize the financing of Dow's agreed 18.8-billion-dollar acquisition of Rohm and Haas, a US specialty materials firm.

Kuwait's decision "places Dow’s purchase of Rohm and Haas in jeopardy. Dow was going to use 9.0 billion dollars in proceeds from the deal with the Kuwaitis to finance its acquisition of Rohm and Haas," said Fred Dickson, an analyst at DA Davidson & Co.

In the auto sector, General Motors slid 1.64 percent to 3.60 dollars. The biggest US automaker and Chrysler, which is not publicly traded, were due to receive four billion dollar loans each from the US Treasury to avert their imminent collapse. The Treasury is still working on those loans, a Treasury spokeswoman told AFP Monday.

Analysts said thin trading was expected this week, clipped by the New Year's holiday Thursday. Scant economic and corporate events were on the calendar for the close of 2008.

"With another holiday-shortened week, we wouldn't be surprised to see a repeat of last week, with volatility continuing to drift lower into the end of the year as equities and the broad market make little movement," said Todd Salamone, analyst at Schaeffer's Investment Research.

On Friday, the major indices made modest gains in thin post-Christmas holiday trading. The Dow advanced 0.56 percent, the Nasdaq rose 0.35 percent and the S&P 500 climbed 0.54 percent.

The bond market was mixed Monday but hovered near its record highs. The yield on the 10-year US Treasury bond fell to 2.096 percent from 2.137 percent Friday, while that on the 30-year bond edged up to 2.625 percent from 2.613 percent. Bond yields and prices move in opposite directions.